There has been a lot written about the recent UK-EU Trade and Co-operation Agreement (TCA), particularly around cross-border trade in goods. Indeed, the key “win” was the “tariff and quota-free” trade, and the recent headlines have been dominated by border delays owing to new customs formalities.
Much less has been written about the impact on services, yet with 80% of the UK economy being made up of the services sector, it is crucial to understand how the TCA will impact cross-border trade-in services.
The main reason for the relative lack of coverage is that the TCA is very light on services-related provisions. Ultimately, the TCA does not provide the level of market access afforded to the UK whilst it was part of the single market, or anything resembling that level of market access.
There are some positives under the TCA in respect of services. For example, the TCA includes a “most-favoured-nation” statement which means that if the UK or (more importantly) the EU, agree more favourable terms with another country in the future, then such terms will be automatically extended to include UK-EU trade.
Additionally, the TCA provides that neither the UK nor EU may treat any incoming firms less favourably than the most favourable treatment afforded to its own firms (known as “national treatment” in the TCA). Finally, another benefit is that short-term business travel is permitted under the deal, albeit with caveats.
Notwithstanding some of these positive points, the value of the TCA is limited in respect of services, and there are a significant number of general restrictions caveated into the positives mentioned. For example, to benefit from short-term business travel, an independent professional will need to have a degree and six years’ experience to use this permit to their advantage and meet other criteria that will render a lot of overseas business travel no longer possible without a visa. Also, mutual recognition of professional qualifications is no longer automatic for UK-EU trade, which will be problematic in areas such as engineering. Instead, economic needs tests will appear more commonplace and will act as a barrier between free trade.
Qualifications will need to be recognised on a state-by-state basis in the EU, and this will present difficulties, given that rules vary significantly by both state and sector. There are some limited exceptions to this in the TCA, notably for legal services. As a result, UK lawyers will still hold the right to advise EU based clients on the UK and public international law, although the EU Member States do hold the right to place specific limits on this activity.
The TCA provisions are also limited in respect of trade in financial services, which is another area of major importance to the UK economy and an issue that many businesses will be disappointed not to see catered for in more detail.
The issue of equivalence has not been dealt with, leaving such decisions as unilateral decisions to be agreed between the parties. This means that the EU and UK can unilaterally recognise a third country regulatory framework as equivalent to their own in relation to market access and other purposes. However, given that there are 59 areas in which equivalence decisions can be taken, this could prove hugely restrictive for UK firms looking to provide financial service offerings in the EU.
Existing equivalence regimes under EU law vary markedly in their scope and operations. Only a limited number allow third-country financial firms to service EU clients without requiring EU approval. Even where a third-country offering can benefit from a regime that grants EU authorisation, it will be challenging to compete with EU based rivals as they will be subject to more restrictive conditions without passport rights. It should also be noted that each regime allows equivalence to be revoked unilaterally.
Regarding data, the TCA does address data transfer, which is another area that will impact trade, particularly digital trade in the technology sector. However, the TCA does not give the UK an ‘adequacy decision’, and much is left unresolved in terms of cross-border personal data transfers.
Prior to Brexit, the UK was able to benefit from the free flow of personal data across the single market without the need for an adequacy decision from the European Commission recognising the UK’s data protection measures as equivalent to those in the EU. The TCA provides for a 4-month (automatically extending to 6-month) bridging period, under which personal data can continue to be transferred on the same basis as before to allow for adequacy decisions to be finalised.
This has eased concerns that the UK would imminently face severe data disruption issues in commercial areas. However, an adequacy decision should not be taken for granted, and businesses should be addressing any concerns before the end of the 4–6-month period. You can read more detailed guidance about the impact of the deal on data here.
Ultimately, the UK services sector faces a future in which it will need to adjust to a new state by state service-specific mixture of market access constraints. In the short-term, this is likely to lead to more administrative costs, making planning more challenging. In the long term, the sector will need to keep a close eye on any further changes to how the EU deals with third countries and adapt accordingly.
You can contact our specialist Brexit team for legal support on the issues discussed, along with any other Brexit related assistance you may require. You can also access our dedicated Brexit Hub or contact us on 0161 941 4000 or email our Brexit team for further information.